Paul Krugman loves to berate journalists for their ignorance of economics, particularly his economics, but on this occasion, I fear, his logic is more addled than usual. I am reluctant to dignify his hatchet job with a lengthy reply, but some of his claims are so defamatory that they should be addressed, if only for the record.

1) Krugman claims that my opening sentence--"In a way, Bill Gates's current troubles with the Justice Department grew out of an economics seminar that took place thirteen years ago, at Harvard's John F. Kennedy School of Government"--is "pure fiction." Perhaps so, but in that case somebody should tell this to Joel Klein, the assistant attorney general in charge of the antitrust division. When I interviewed Klein for my piece about the Microsoft case, he singled out Brian Arthur as the economist who has most influenced his thinking about the way in which high-technology markets operate. It was Klein's words, not those of Arthur, that prompted me to use Arthur in the lead of the story.

2) Krugman wrote: "Cassidy's article tells the story of how Stanford Professor Brian Arthur came up with the idea of increasing returns." I wrote no such thing, and Arthur has never, to my knowledge, claimed any such thing. The notion of increasing returns has been around since Adam Smith, and it was written about at length by Alfred Marshall in 1890. What I did say in my article was that increasing returns was largely ignored by mainstream economists for much of the postwar era, a claim that simply isn't controversial. (As Krugman notes, one reason for this was technical, not ideological. Allowing for the possibility of increasing returns tends to rob economic models of two properties that economists cherish: simplicity and determinism. As long ago as 1939, Sir John Hicks, one of the founders of modern economics, noted that increasing returns, if tolerated, could lead to the "wreckage" of a large part of economic theory.)

3) Pace Krugman, I also did not claim that Arthur bears principal responsibility for the rediscovery of increasing returns by economists in the 1970s and 1980s. As Krugman notes, several scholars (himself included) who were working in the fields of game theory and international trade published articles incorporating increasing returns before Arthur did. My claim was simply that Arthur applied increasing returns to high-technology markets, and that his work influenced how other economists and government officials think about these markets. Krugman apart, virtually every economist I have spoken to, including Daniel Rubinfeld, a former Berkeley professor who is now the chief economist at the Justice Department's antitrust division, told me this was the case. (Rubinfeld also mentioned several other economists who did influential work, and I cited three of them in the article.)

4) Krugman appears to suggest that I made up some quotes, a charge that, if it came from a more objective source, I would consider to be a serious matter. In effect, he is accusing Brian Arthur, a man he calls a "nice guy," of being a fabricator or a liar. The quotes in question came from Arthur, and they were based on his recollections of two meetings that he attended some years ago. After Krugman's article appeared, the Santa Fe professor called me to say that he still recalled the meetings in question as I described them. Krugman, as he admits, wasn't present at either of the meetings.

5) For a man who takes his own cogitations extremely seriously, Krugman is remarkably cavalier about attributing motives and beliefs to others. "Cassidy has made it clear in earlier writing that he does not like mainstream economists, and he may have been overly eager to accept a story that puts them in a bad light," he pronounces. I presume this statement refers to a critical piece I wrote in 1996 about the direction that economic research, principally macroeconomic research, has taken over the past two decades. In response to that article, I received dozens of messages of appreciation from mainstream economists, including from two former presidents of the American Economic Association. Among the sources quoted in that piece were the then-chairman of the White House Council of Economic Advisers (Joseph Stiglitz), a governor of the Federal Reserve Board (Laurence Meyer), and a well-known Harvard professor (Gregory Mankiw). To claim, as Krugman does, that I "don't like mainstream economists" and that I am out to denigrate their work is malicious hogwash. The fact of the matter is that I spend much of my life reading the work of mainstream economists, speaking to them, and trying to find something they have written that might interest the general public. In my experience, most economists appreciate the attention.

6) I might attach more weight to Krugman's criticisms if I hadn't recently reread his informative 1994 book Peddling Prosperity, in which he devotes a chapter to the rediscovery of increasing returns by contemporary economists. Who are the first scholars Krugman mentions in his account? Paul David, an economic historian who wrote a famous paper about how the QWERTYUIOP typewriter keyboard evolved and, you guessed it, Brian Arthur. "Why QWERTYUIOP?" Krugman wrote. "In the early 1980s, Paul David and his Stanford colleague Brian Arthur asked that question, and quickly realized that it led them into surprisingly deep waters. ... What Paul David, Brian Arthur, and a growing number of other economists began to realize in the late seventies and early eighties was that stories like that of the typewriter keyboard are, in fact, pervasive in the economy." Evidently, Krugman felt four years ago that Arthur's contribution was important enough to merit a prominent mention in his book. Now, he dismisses the same work, saying it "didn't tell me anything that I didn't already know." Doubtless, this change in attitude on Krugman's part is unconnected to the fact that Arthur has started to receive some public recognition. The eminent MIT professor, whose early academic work received widespread media attention, is far too generous a scholar to succumb to such pettiness.

Thanks to Paul Krugman for his lament about credulous reporters who refuse to let facts stand in the way of a good story ("The Legend of Arthur"). As a professional journalist, I found his points well taken--even when he cites my own book, Complexity as a classic example of the gullibility genre.

Among many other things, Complexity tells the story of the Irish-born economist Brian Arthur and how he came to champion a principle known as "increasing returns." The recent New Yorker article explains how that principle has since become the intellectual foundation of the Clinton administration's antitrust case against Microsoft. Krugman's complaint is that the popular press--including Complexity and The New Yorker--is now hailing Brian Arthur as the originator of increasing returns, even though Krugman and many others had worked on the idea long before Arthur did.

I leave it for others to decide whether I was too gullible in writing Complexity. For the record, however, I would like to inject a few facts into Krugman's story, which he summarizes nicely in the final paragraph:

When Waldrop's book came out, I wrote him as politely as I could, asking exactly how he had managed to come up with his version of events. He did, to his credit, write back. He explained that while he had become aware of some other people working on increasing returns, trying to put them in would have pulled his story line out of shape. ... So what we really learn from the legend of Arthur is that some journalists like a good story too much to find out whether it is really true.

Now, I will admit to many sins, not the least of them being a profound ignorance of graduate-level economics; I spent my graduate-school career in the physics department instead, writing a Ph.D. dissertation on the quantum-field theory of elementary particle collisions at relativistic energies. However, I am not so ignorant of the canons of journalism (and of common sense) that I would take a plausible fellow like Brian Arthur at face value without checking up on him. During my research for Complexity I spoke to a number of economists about his work, including Nobel laureate Kenneth Arrow, co-creator of the General Equilibrium Theory of economics that Brian so eloquently criticizes. They generally agreed that Brian was a maverick in the field--and perhaps a bit too much in love with his own self-image as a misunderstood outsider--but basically sound. None of them warned me that he was usurping credit where credit was not due.

Which brings me to Professor Krugman's letter, and my reply. I remember the exchange very well. Obviously, however, my reply failed to make clear what I was really trying to say. So I'll try again:

a) During our interviews, Brian went out of his way to impress upon me that many other economists had done work in increasing returns--Paul Krugman among them. He was anxious that they be given due credit in anything I wrote. So was I.

b) Accordingly, I included a passage in Complexity in which Brian does indeed describe what others had done in the field--Paul Krugman among them. Elsewhere in that same chapter, I tried to make it clear that the concept of increasing returns was already well known to Brian's professors at Berkeley, where he first learned of it. Indeed, I quote Brian pointing out that increasing returns had been extensively discussed by the great English economist Alfred Marshall in 1891.

c) So, when I received Krugman's letter shortly after Complexity came out, I was puzzled: He was complaining that I hadn't referenced others in the increasing-returns field--Paul Krugman among them--although I had explicitly done so.

d) But, when I checked the published text, I was chagrined to discover that the critical passage mentioning Krugman wasn't there.

e) Only then did I realize what had happened. After I had submitted the manuscript, my editor at Simon & Schuster had suggested a number of cuts to streamline what was already a long and involved chapter on Brian's ideas. I accepted some of the cuts, and restored others--including (I thought) the passage that mentioned Krugman. In the rush to get Complexity to press, however, that passage somehow wound up on the cutting-room floor anyway, and I didn't notice until too late.

That oversight was my fault entirely, not my editor's, and certainly not Brian Arthur's. I take full responsibility, I regret it, and--if Simon & Schuster only published an errata column--I would happily correct it publicly. However, contrary to what Professor Krugman implies, it was an oversight, not a breezy disregard of facts for the sake of a good story.

I am truly sorry that The New Yorker has not yet established a Web presence so that we could include a link directly to the Cassidy piece. However, you can get a pretty good idea of what the piece said by reading the summary of it presented in "Tasty Bits from the Technology Front." Cassidy did not present a story about one guy among many who worked on increasing returns. On the contrary: He presented a morality play in which a lonely hero struggled to make his ideas heard against the unified opposition of a narrow-minded profession both intellectually and politically conservative. As TBTF's host--not exactly a naive reader--put it, "These ideas were anathema to mainstream economists in 1984 when Arthur first tried to publish them."

That morality play--not the question of who deserves credit--was the main point of my column, because it is a pure (and malicious) fantasy that has nonetheless become part of the story line people tell about increasing returns and its relationship to mainstream economics.

The fact, which is easily documented, is that during the years that, according to the legend, increasing returns was unacceptable in mainstream economics, papers about increasing returns were in fact being cheerfully published by all the major journals. And as I pointed out in the chronology I provided with the article, even standard reference volumes like the Handbook of International Economics (published in 1984, the year Arthur supposedly met a blank wall of resistance) have long contained chapters on increasing returns. Whatever the reason that Arthur had trouble getting his own paper published, ideological rigidity had nothing to do with it.

How did this fantasy come to be so widely believed? I am glad to hear that you tried to tell a more balanced story, Mr. Waldrop, even if sloppy paperwork kept it from seeing the light of day. And I am glad that you talked to Ken Arrow. But Nobel laureates, who have wide responsibilities and much on their mind, are not necessarily on top of what has been going on in research outside their usual field. I happen to know of one laureate who, circa 1991, was quite unaware that anyone had thought about increasing returns in either growth or trade. Did you try talking to anyone else--say, to one of the economists who are the straight men in the stories you tell? For example, your book starts with the story of Arthur's meeting in 1987 with Al Fishlow at Berkeley, in which Fishlow supposedly said, "We know that increasing returns can't exist"--and Arthur went away in despair over the unwillingness of economists to think the unthinkable. Did you call Fishlow to ask whether he said it, and what he meant? Since by 1987 Paul Romer's 1986 papers on increasing returns and growth had started an avalanche of derivative work, he was certainly joking--what he probably meant was "Oh no, not you too." And let me say that I simply cannot believe that you could have talked about increasing returns with any significant number of economists outside Santa Fe without Romer's name popping up in the first 30 seconds of every conversation--unless you were very selective about whom you talked to. And oh, by the way, there are such things as libraries, where you can browse actual economics journals and see what they contain.

The point is that it's not just a matter of failing to cite a few more people. Your book, like the Cassidy article, didn't just tell the story of Brian Arthur; it also painted a picture of the economics profession, its intellectual bigotry and prejudice, which happens to be a complete fabrication (with some real, named people cast as villains) that somehow someone managed to sell you. I wonder who?

Even more to the point: How did Cassidy come by his story? Is it possible that he completely misunderstood what Brian Arthur was saying--that the whole business about the seminar at Harvard where nobody would accept increasing returns, about the lonely struggle of Arthur in the face of ideological rigidity, even the quotation from Arthur about economists being unwilling to consider the possibility of imperfect markets because of the Cold War (give me a break!) were all in Cassidy's imagination?

Let me say that I am actually quite grateful to Cassidy and The New Yorker. A number of people have long been furious about your book--for example, Victor Norman, whom you portrayed as the first of many economists too dumb or perhaps narrow-minded to understand Arthur's brilliant innovation. Norman e-mailed me to say that "I have read the tales from the Vienna woods before and had hoped that it could be cleared up by someone at some point." Yet up to now there was nothing anyone could do about the situation. The trouble was that while "heroic rebel defies orthodoxy" is a story so good that nobody even tries to check it out, "guy makes minor contribution to well-established field, proclaims himself its founder" is so boring as to be unpublishable. (David Warsh's 1994 series of columns in the Boston Globe on the increasing-returns revolution in economics, the basis for a forthcoming book from Harvard University Press, is far and away the best reporting on the subject, did include a sympathetic but devastating exposé of Arthur's pretensions--but to little effect. [Click to read Warsh on Arthur.]) Only now did I have a publishable story: "guy makes minor contribution to well-established field, portrays himself as heroic rebel--and The New Yorker believes him."

Paul Krugman's attack on Brian Arthur ("The Legend of Arthur") requires a correction of its misrepresentations of fact. Arthur is a reputable and significant scholar whose work is indeed having influence in the field of industrial organization and in particular public policy toward antitrust policy in hightech industries. Krugman admits that he wrote the article because he was "just pissed off," not a very good state for a judicious statement of facts, as his column shows.

His theme is stated in his first paragraph: "Cassidy's article [in The New Yorker of Jan. 12] tells the story of how Stanford Professor Brian Arthur came up with the idea of increasing returns." Cassidy, however, said nothing of the sort. The concept of increasing returns is indeed very old, and Cassidy at no point attributed that idea to Arthur. Indeed, the phrase "increasing returns" appears just once in Cassidy's article and then merely to say that Arthur had used the term while others refer to network externalities. Further, Arthur has never made any such preposterous claim at any other time. On the contrary, his papers have fully cited the history of the field and made references to the previous papers, including those of Paul Krugman. (See Arthur's papers collected in the volume Increasing Returns and Path Dependence in the Economy, especially his preface and my foreword for longer comments on Arthur's work in historic perspective. Click to see the foreword.) Hence, Krugman's whole attack is directed at a statement made neither by Arthur nor by Cassidy. Krugman has not read Cassidy's piece with any care nor has he bothered to review what Arthur has in fact said.

What Cassidy in fact did in his article was to trace a line of influence between one of Arthur's early articles and the current claims of the Department of Justice against Microsoft. It appears that Cassidy based his article on several interviews, not just one.

The point that Arthur has emphasized and which is influential in the current debates about antitrust policy is the dynamic implication of increasing returns. It is the concept of pathdependence, that small events, whether random or the result of corporate strategic choice, may have large consequences because of increasing returns of various kinds. Initial small advantages become magnified, for example, by creating a large installed base, and direct the future, possibly in an inefficient direction. Techniques of production may be locked in at an early stage. Similar considerations apply to regional development and learning.

After reading Paul Krugman vent his spleen against fellow economist Brian Arthur in "The Legend of Arthur," I couldn't help wondering whose reputation he was out to trash, Arthur's or his own. Krugman seems to fear a plot to deny economists their intellectual due. If one exists, Arthur is not a likely suspect. In a series of long interviews with me a year ago (for Worth magazine), I tried, vainly, to get Arthur to tell me how his ideas about increasing returns have encouraged a new strain of economic investigations. Despite much prodding, Arthur obliged only by placing himself in a long line of theorists dating back to Adam Smith and Alfred Marshall. I also found him disarmingly generous in giving credit to the biologists, physicists, and fellow economists who have helped advance his own thinking. Savvy to the journalist's quest for heroes, Arthur urged me to focus on his ideas, not his rank among his peers. Krugman has made a career out of telling other economists to pay better attention to the facts, yet as a chronicler of Arthur's career and inner life, Krugman seems to have listened only to his own demons.

--Ted C. Fishman

(For additional background on the history of "increasing returns" and Brian Arthur's standing in the field, click for David Warsh's July 3, 1994,Boston Globearticle on Brian Arthur)